Council House Rents

§Lord Dean of Beswick rose to ask Her Majesty's Government what information they have of current levels of council house rents and those proposed for the next financial year in the light of the provisions of the Housing Act 1988 and the Local Government Housing Act 1989.

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The noble Lord said: My Lords, over the past couple of hours or so your Lordships have debated an issue which involves people who in financial terms have what one could call a lot. The question that I want to pose to the Minister concerns people who do not have a lot in financial terms and probably will never be lucky enough to be in that situation. I have tabled this Unstarred Question because it is too big a subject to be dealt with in a Starred Question. The Minister will be aware that last week I asked a Question on a similar subject. It would be totally unfair to the House to try to develop a theme during a Starred Question. There is no personal aggravation towards the Minister who replied on that day and my noble friend on the Front Bench who speaks for my party on this subject will, I am sure, take the same view.

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Because there is a substantial change in the method of levelling the rents of municipal tenants we are trying to find out what will happen so that the tenants themselves will know what system is being applied to them. We are not too sure—I say this because of the Minister's reply to my Starred Question last week—that the Department of the Environment knows what will happen in regard to the side effects of poll tax and so on, although I do not want to introduce that subject into the debate.

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It is a strange phenomenon that the top five authorities for proposing substantial increases in rents are Conservative ones. I accept that the Government are sincere in their desire to curb inflation. They do not have any other objective. That is not to say that I think they have been successful. Things have gone wrong and inflation has not been curbed The rents of ordinary people in council houses may not look high in comparison to rents in the private sector but to these people they are a substantial part of their weekly or monthly budget. I cannot understand why these Conservative authorities have decided to impose increases above the guidelines. The Minister was not able to give me the reason they have done so.

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Last autumn, the Department of the Environment published guideline weekly rent increases for all local authorities, giving a figure for each authority of between 95p and £4–50p. The reason for the excessive increases is that the Local Government and Housing Act 1989 imposes certain new requirements on local authorities. It prevents local authorities from continuing the practice of subsidising their housing revenue account from the general rate fund. That means that the cost of managing and maintaining their housing has to be met from the housing revenue account. As your Lordships know, this is now known as ring fencing. It means that the cost of housing benefit will be met by rental income in a rather unfairer system which makes tenants in work pay for the poorest tenants. That particular facet was, I believe, quite forcefully exposed and enunciated by my noble friend on the Front Bench Lord Mcintosh during the passage of the Bill during the last Session of Parliament.

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The Local Government and Housing Act 1989 also demolished the system known as "capitalised repairs" whereby local authorities could use their capital receipts from the sale of council houses to repair and maintain the existing stock. Instead, the money, apart from 25 per cent, which can be spent on new building, now has to go immediately towards paying off their debts which in terms of providing additional housing is a nil factor. In my opinion it does not make any contribution whatever. Those and other changes introduced in the legislation, together with the new restrictions on the level of subsidy received by local authorities from central government, mean that local authorities now have less money to spend in proportion on council housing than they had previously. They have to choose between increasing rents or cutting their repairs programme or other services.

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I should like to give some comparisons. I do not propose to speak at length because I do not think that this is the occasion to do so. Council house
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tenants are obviously those in the lower income group. Yet, excluding this year, the Government have forced up rents in local authority housing by 212 per cent, since 1979. In contrast, the RPI for the same period has increased by 128 per cent. That shows that local authority tenants have been called upon to meet a far higher proportion of the increase in order to provide themselves with housing than other people.

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As regards the Government's calculations or assumptions on the poll tax, the guidelines that they produced have proved to be unreliable because the information I have shows that from 153 local authorities 70 per cent, have been setting rents above the guidelines and only 16 per cent, have been setting rents below. I should now like to give the House some comparisons. I should also like to ask the Minister two questions. However, if he cannot give me detailed answers tonight perhaps he will refer them to the Secretary of State because we may need some recommendations from him.

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I have talked about savage increases in rents. Perhaps I may quote some examples. In the City of London the increase is £5–39, which brings the total figure to £35–18; in Harrow the increase is £8–72, which makes the total figure £37–09; and in Merton the increase is £11–14, making the total amount £39–34. Then we come to what is perhaps one of the worst examples. I refer to the outer London borough—I term it as such because I am a Northerner—of Redbridge. There the rent increase has been £15–64, making a total rent of £51–27.

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I can remember being heavily involved in a campaign many years ago against a Conservative Government led by Mr. Heath. It almost reached the dimensions of the present poll tax campaign when the suggestion was made under the fair rents Act that an increase of 50 pence a year should be imposed. However, here we have a Conservative-controlled authority which increases the rent by £15–64 in one go thus making the total rent £51–27 for a council house. Finally, I should point out that in Canterbury the increase is £12–29, which represents an increase of 54 per cent.

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I have two main points that I wish to put to the Minister. If he does not have the authority to answer tonight I know that he will consider the points and refer them to the Secretary of State to see just what is the position. I should like to know why five Conservative-controlled authorities, knowing the clear guideline issued by the new Minister of Housing and Planning and Mr. Patten, the Secretary of State, chose to exploit the situation out of all proportion. I picked out those five authorities because some authorities have set their rents slightly above and some slightly below. I picked the worst examples in areas where I do not think that the increases were necessary. However, perhaps the Minister can disabuse me of that view.

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I cannot believe that what has happened has the backing of Mr. Patten or of the new Minister of Housing and Planning, Mr. Spicer. I do not think for one moment that they were consulted or that they would condone those increases, bearing in mind the fact that they are responsible for trying to run a big spending department in line with the Government's
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belief in keeping down inflation and reducing it where possible.

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Can the Minister give one valid reason why these astronomical increases should have been levelled at one bite? My next question is one which I put to him rather unexpectedly last week; indeed, in some respects I had not anticipated it either. In my view these substantial increases, which are in my opinion out of all proportion, may create a substantial surplus in the housing revenue accounts of these authorities. Will the Minister give an undertaking that if these substantial increases create a heavy surplus in the balance on housing revenue accounts this will not be made available for those local authorities to use next year to levy an artificial level of poll tax or community charge rate?

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I ask for that undertaking because the legislation about which we were talking, and upon which my noble friend Lord Mcintosh on the Front Bench spent much time, removed the rights of local authorities in areas of need where this situation usually occurs to levy a rate fund charge on their housing revenue account. That is what it did. Of course, some time ago the Government decided that where local authorities' housing revenue accounts were in surplus they could use it in reverse for the benefit of ratepayers and thereby reduce the rates.

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All I am asking is that if housing increases provide tremendous surpluses for local authorities, those authorities will not be allowed to siphon them off in order to reduce the poll tax for next year. That is the important question. If they are able to do that and the Government are not prepared to step in and prevent it, speaking for myself, my colleagues and other fair-minded people, I believe that it will be an outrage of the worst kind perpetrated against council house tenants.

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Finally, there is a whiff—more than a whiff—that in areas like Redbridge the increases have been forced on tenants because they dared to vote against the opting out scheme. They did not wish, as council house tenants, to move into the private sector. Those questions require answers. If they cannot be given tonight, they should be pursued either in your Lordships' House or another place.

My Lords, the issue which my noble friend Lord Dean has raised this evening is of great importance to a large number of people. It is dispiriting that no other Members of your Lordships' House have felt it appropriate to put their names down to speak on the issue. It is dispiriting but not surprising. One only has to look at the composition of the House to realise that 5 million council tenants—between 15 and 20 per cent, of the population live in council houses—are not proportionately represented in your Lordships' House. There are far more lawyers and judges than council tenants here; far more salmon fishers here. I wish that the noble Lord, Lord Borthwick, had still been present; I believe that there are more chiefs of Scottish clans than there are council tenants in your Lordships' House.

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I recall when we debated the 1986 Education Act the amount of time which your Lordships thought proper to spend on the Salmon Bill which was going through the House at the same time as compared with the Education Bill. I suspect that these are only further nails in the coffin of the House of Lords as at present constituted. It is dispiriting to think that our sense of priorities is so poor that we do not pay adequate attention to the proper needs and concerns of a large part of our population.

As my noble friend said, when we debated the 1989 Local Government and Housing Act and the 1988 Housing Act, we expressed grave concern—or worse than that—about the proposed method of calculating rents and controlling council house rents. I go further than "grave concern"; we thought what was proposed was both absurd—and I shall show that it was absurd—and also deeply divisive and unfair to council tenants.

It was absurd because one of the main considerations to be taken into account in fixing the Government's approved level of council house rents was to be the market value. That would mean that the council house rents, for example, in the South East of England and London in particular would be much higher than in northern parts of the country. However, the difference in income is by no means as marked as the difference in house prices. We thought that the idea of setting market rents for council houses was absurd and deeply unfair to many people in need, particularly in inner and outer London.

The effect of the new policy was that nearly all council house rents would now be controlled in effect by the Government. The abolition of the separate rent rebate subsidy and its incorporation into the total housing subsidy meant that in all housing authorities local councils must follow government guidelines in the way in which they set their housing expenditure. Any expenditure incurred on lower rents must be found from other housing expenditure. That is the effect of ring fencing. Local authorities which want to keep rents down can only do so at the expense of necessary repairs and improvements in the management of their properties.

Even worse than that—and we objected most strongly to this—the ring fencing proposals mean that any arrears in council house rents have to be paid for not by the ratepayers or taxpayers as a whole, but by other council tenants, those who pay their rents on time. That seemed to us a clear and wicked injustice. We still feel strongly about it.

The argument on which the capital valuation system of setting rents is based is itself unsound. There is no such things as a market for council houses. It is not the distribution of relative market demands that Ministers seem to think is the significant consideration. If people find themselves homeless, they have no choice about where they go; they have to apply to the council in whose area they live. That council must do the best it can for them.

The system of council house rents which has been introduced by recent legislation has weakened the power of council tenants, those in most need in our society, to have any choice at all in the housing which they are allocated. It has weakened the ability
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to provide housing of councils themselves and housing, authorities, some of which do not have good records but some of which have excellent records in caring for their tenants. It has weakened their ability to look after their tenants and provide the best for them.

All this has been done in theory on the basis that we should be approaching market rents for council housing. Really it is because the intention is to increase the demand by force for private rented accommodation. Nobody objects to increasing the demand for private rented accommodation, but it should be on the basis of levelling up, not levelling down. What is happening is that the penalties of alternative forms of accommodation for those in need are being increased so that people are forced into private rented accommodation. This is on the quite erroneous theory that somehow it will improve the supply and quality of the private rented accommodation.

All these theories have been debated at considerable length, and as my noble friend said, they are seriously flawed. The thinking behind the recent housing legislation has inevitably led to the problems that council tenants now face.

The situation has become worse. What has happened since the legislation is that the Government have set target figures. As it turns out, these figures are as wildly inaccurate and fantastic as the target figures which we have seen for the poll tax. The Government told us that the average level of poll tax ought to be £278. We now know that it is more of the order of £350. Similarly, the Government told us that the permitted increase in council house rents would be of the order of £4–50 per week. They then cut their allocation of subsidy to housing authorities in order to reflect that increase.

As my noble friend clearly showed from the examples he gave, many of the increases are much more than that, more than the 20 per cent, on average which even the £4–50 would have represented. As with the poll tax, the result has been that many people suffer severely. Those in conservative authorities are being victimised sometimes, I suspect, because they have shown their independence by rejecting the attempts of their councils to get rid of housing responsibilities and give them to the private sector.

My noble friend has properly asked what the Government are going to do about this matter and what they now understand the position to be. When this matter was raised in a Starred Question recently, the Minister sheltered behind two arguments. First, he said that the setting of rents is a matter for local authorities and not for councils. That is strictly true, but the way in which local authorities set their rents is very much determined by the subsidies that they are able to obtain for their housing programmes. The fact that they are losing subsidy up to another 20 per cent, on existing rents must force rents up, just as ring-fencing must mean that councils have to choose between necessary maintenance and affbrdable rents. Therefore, the Minister cannot shelter behind that argument.

The second argument which the Minister repeated time after time in response to the Starred Question
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was that it is all right because the new rents will be liable for rebates. I suppose that might be all right in one sense if one left aside Conservative theory about these matters. But I thought the Conservative Government were working on the principle that we should reduce dependency and that we should get away from the dependency culture; that fewer people should be forced to apply for help from the Government and more people should be encouraged to stand on their own feet.

However, the effect of increasing rents to such an extent that more people have to apply for housing benefit will be a deliberate and direct increase in the dependency culture, and that should be repugnant to the Conservative Government, just as the impoverishment of our council tenants is repugnant to us. Even without that argument of principle, the change in housing benefit two years ago altered the upper level at which housing benefit starts to apply and the tapering of housing benefit as income increases. That still leaves a large number of families who may not be the very poorest but are certainly struggling to live on their income week by week considerably poorer than they would otherwise be.

For those reasons we on these Benches will simply not accept either the argument that the availability of housing benefit absolves the Government from their obligations or the argument that the Government have nothing to do with the setting of council house rents. The Government have in effect imposed the framework in which council house rents have to be set. Those rents are being set on a very unfair basis and it is now inevitable —that will not displease us—that the effects of that will be shown in the local council elections which will take place at the beginning of May.

My Lords, the noble Lord, Lord Mcintosh, was present in your Lordships' House last week when the noble Lord, Lord Dean of Beswick, raised this matter in a Starred Question. Therefore, I fear that the noble Lord, Lord Mcintosh, will be slightly disappointed by some aspects of my reply this evening. I am sure that will not come entirely as a shock to him.

The Government's policies, as embodied in the Local Government and Housing Act 1989, were of course extensively debated in this House during the passage of the Bill. Some of the points raised today were raised in the House only last week, so I do not want to go over too much old ground. There have, however, been some quite unnecessary reports from some quarters about the effects of our policies on council rents. I therefore welcome this opportunity to set out the Government's position. In particular, I shall be pleased to clarify how we intend to improve the way in which the Government help support council housing by direct subsidy.

We have a simple and most desirable aim. It is to encourage a sensible pattern of rents both among authorities and within authorities —a pattern which reflects the value of the accommodation being provided. Rents of course already vary from place to place. But they do so in an arbitrary and unpredictable way. They reflect differences in the historic cost of providing the housing, windfall gains
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from housing capital receipts and, I am afraid, political decisions which have meant ratepayers subsidising the rents. They do not reflect what the housing is actually worth.

It is worth while to remember that the value of the stock on a historic basis is about £20 billion, but on a replacement basis it is some £100 billion.

My Lords, is that not why sensible housing authorities have a varied portfolio of property of different ages, and reflect not the replacement cost of an individual property in their rent policies but rather the replacement cost and the original cost of the entire portfolio? That is possible for local authorities but it is only possible for a very few private landlords.

My Lords, that is true. I was using that illustration for a slightly different example—that will not come as a surprise to the noble Lord, Lord McIntosh—to show that there is a provision for a hidden and generous subsidy in the way this accounting is carried out.

My Lords, I thank the Minister for giving way as I spoke at some length at the beginning of the debate. However, the Minister must be aware that historically local authorities that dealt with council housing over a long period based most of their rents not on historical costs or replacement costs but on the historical cost of their own housing stock. In effect, as debt charges started to decline, they reduced the necessity to finance properties. Every tenant benefited by that and the Government were not involved. Why have the Government moved away from that position?

My Lords, I produced the figures to show what is behind the facts and figures rather than to try to antagonise the noble Lord, Lord Dean, on this issue.

It is also important to remember that the former system distorted councils' accountability to tenants and ratepayers alike. It locked tenants into dependency on one landlord at the expense of choice and mobility. That is why we brought in the Local Government and Housing Act 1989 which introduces the ring fence around the housing revenue account and the new unified housing revenue account subsidy.

Let me turn briefly to our method of distributing that subsidy. The Government need to make assumptions about how much rental income an authority can be expected to raise. At present, we make a single assumption which applies across the board to all authorities. It would have been £2.08 next year. This makes little sense as it takes no account of individual circumstances. It would simply perpetuate the inequities of the existing pattern of rents.

By contrast, under the new arrangements we assume that different authorities put up their rents by different amounts. In general our assumptions result in higher guideline increases where the value
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of the local authority housing is higher and where rents are below average. The result is that 156 authorities will receive the minimum guideline of 95p; elsewhere the guidelines are higher but nowhere exceed £4.50 a week. It is for individual authorities to set the actual rent levels. But we believe that every authority should be able to stay within our guidelines if they so wish.

I now turn to the points raised by the noble Lords, Lord Mcintosh and Lord Dean. I heard the argument tonight which I have heard before and which I am becoming more familiar with each passing month. It is the suggestion that tenants effectively pay for the rebates of other tenants. We do not believe there is any question of authorities raising rents in order to pay for the cost of rebates. We have announced our method of calculating the guideline rents. We want to see rents that are related more closely to the value of the accommodation so there is a more sensible pattern of rents around the country.

My Lords, I am grateful to the Minister for giving way again. However, I did not suggest that council tenants were paying for rebates. We have said that they were paying for other council tenants who were in arrears. That was the particular point that we have made.

My Lords, I am sorry if I misunderstood the noble Lord, Lord Mcintosh. I believe he raised that point last week. I suggested to him then, as I do now, that at the end of the day it will always be the taxpayer who has to square the account as regards rent arrears. I believe that to be true.

I believe that the noble Lord, Lord Dean, suggested that, as regards allowances for the management of property, there was an inadequacy in the figure that had been reached in terms of the overall picture. I believe I have interpreted that correctly as the noble Lord, Lord Dean, is nodding his head. The reality is that allowances are based on councils' own actual spending over three recent years, uprated. We thought a three-year average was preferable as a single year's figure can be unrepresentative. We did not take the current year into account because the books for the year are still open.

For low-spending authorities there are two safety nets. The notional allowance from the old subsidy system will apply where that is higher than actual spending, and the 10 per cent, of authorities which would otherwise receive the lowest allowances will receive a specified minimum allowance.

Ideally we should have liked to target allowances in the first year of the new system. After consulting the local authority associations we accepted that more research was required. However, we are determined to move to a targeted approach as soon as possible.

Both the noble Lord, Lord Mcintosh, and the noble Lord, Lord Dean, drew your Lordships' attention to the rent rises. The noble Lord, Lord Mcintosh, suggested that I was hiding behind what he called "strictly the truth". I thought that quite a good thing to hide behind. One could stand proudly behind the battlements of "strictly the truth".

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This is the part of my answer which I know the noble Lord, Lord Mcintosh, will not find satisfactory. It is up to the local authorities to set rents. It is also important to remember that the average rent increase has been just 3 per cent, above the guidelines. It is even more interesting that in London they have been only 0–8 per cent, above the guidelines. As I mentioned last week, in other areas increases have been below the guidelines, and, in the case of Tyneside, zero.

My Lords, I apologise for intervening again, but my colleague on the Front Bench, Lord Mcintosh, and I mentioned five outer London authorities. We can see no reason for their rent increases being so high. The Minister made the point that it was in the inner London authorities that substantial increases might be needed to cater for deprivation and need. However, cities such as Manchester and Leeds, which have immense problems, have kept close to the guidelines. We want to know why the authorities just outside London have applied high increases when we believe that there in no justification for them.

My Lords, I am not sure whether the authority was mentioned by the noble Lord, Lord Dean, but the other day I was in Bromley. There a major programme is being carried out to make council blocks far more secure. I do not know whether it is so because I do not speak for them, but it is possible that the authorities may have decided to spend heavily on maintenance to improve the environment in which their tenants live. It may be that their tenants would prefer to pay more rent in return for receiving a better service.

Perhaps I may return to the point of the noble Lord, Lord Mcintosh, that the Government are extending the dependency culture. The object of the exercise is to introduce more reality. If that has at the same time an additional cost, which is what I believe the noble Lord was suggesting in terms of extending the dependency culture, I suspect that that is a cost that will have to be borne in the short term.

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The noble Lord, Lord Dean of Beswick, asked a specific question with regard to any surplus in the housing revenue account. In virtually every case a surplus in the housing revenue account can only be used in the housing revenue account for maintenance or to add to balances, for example. Only in a very few special cases will it be permitted to transfer the surplus to the general fund. That arises when, and only when, the local authority is out of subsidy and has a rent income (on our guidelines) greater than all notional outgoings. That was always a feature of the policy and was accepted by Parliament in the Act.

I now return to the Government's general policies towards the council sector. Noble Lords opposite have tried—quite rightly from their point of view—to show that there is some cunning scheme to force up council rents under the 1989 Act so that council tenants are induced to exercise tenants' choice or the right to buy. That is not the case. The fact is that we expect to spend over £3 billion in the coming year on subsidies which will keep council rents far below rent levels in any other sector and well within the reach of ordinary tenants.

At the same time, we are concerned that councils should play their role in the wider housing market. That is why we do not want rents to cause distortions which create the dependency which we discussed earlier and remove people's freedom and choice. The new ring-fenced housing account will help that process. It is the natural complement to our determination to direct subsidy where it is most needed. Tenants will see what they are paying for and be able to judge what they need. I would hope that your Lordships would agree that informed decision-making provides genuine choice.

The Government's policies enable councils to set rents well within the reach of ordinary tenants. We are committed to that continuing to be so.